In the previous installments of Fund Manager Chronicles, I explored lessons learned and effective strategies for raising capital in a Fund format based on my interviews with four successful Fund Managers. This week I will focus on what happens after the capital has been raised – investor relations.
The trust factor
As it was for raising capital, trust was the number one factor in investor relations. One of the Fund Managers I spoke with said that in addition to good returns, investors want to know that they are doing business with good people who are in business for the long term.
Continuing to show audits, profits, and distribution history earns trust with investors. If a Fund Manager can continue to deliver on initial promises, especially if the market cycle experiences detrimental changes, then that further enhances trust, increasing the likelihood of raising additional capital from your existing investor base, earning referrals and providing the type of collateral and track record prospective investors will be looking for.
All four Managers stressed the importance of setting expectations with investors from the beginning. No one likes surprises. If surprises or mistakes do occur, investors expect that you learn from, apologize for, and resolve those mistakes. This type of response cultivates the Fund Manager/Investor relationship and encourages transparent feedback that one of the Fund Managers I spoke to said he is always looking for.
In fact, this same Manager credited his investors as a phenomenal resource who have helped his entire team, challenging them to be better and by questioning and testing their strategies. Another Manager credited his investors who were long-time real estate investors and entrepreneurs, with insights into better underwriting, Fund Management principles and investment structuring advice.
Communication is key
Communication is key and should be done as often as possible. Active communication allows investors to stay passive, allowing Fund Managers to spend their time operating the Fund as opposed to answering excessive questions.
Additional opportunities to meet outside of investment-centric transactions can greatly enhance the relationship between investors and Fund Managers. One of the Fund Managers hosted a large dinner for all their active investors which yielded a strong local turnout. This Manager also hosted an investor lunch and property tour, showing before and after property units, which received an excellent response from investors.
If you are going to manage a Fund, then you must be prepared for difficult, honest conversations. For example, if your Fund is not going to be able to deliver what an investor is asking for then you must possess the discipline to be honest with them.
Different things appeal to different people and you must listen to what people say, how they talk, and the questions they ask, and focus on what is important to them. It can be frustrating when investors focus on things that aren’t relevant, and don’t appreciate what you believe to be important. In such instances, it helps to remember that this is part of the challenge of dealing with people.
Managing a fund is as much about building and maintaining relationships as it is about completing transactions. It is in the best interest of Managers and Investors to nurture these relationships through appreciation, honesty, respect, and communication.
This installment was again based on my discussions with the following four Fund Managers who have successfully raised capital in the fund format:
Drew Buccino, CMB
Principal and COO
Matthew W. Burk
Fairway America, LLC
Erica England, C.P.A
Redwood’s Chief Accounting Officer Erica England C.P.A. has 10+ years of experience working in the private equity industry and is always happy to discuss how Redwood could help you with your fund administration needs. Reach out to Erica at email@example.com to learn more.